1/19/09

How bad is it out there in the economic storms around the world? Start praying more fervently.

Two stories by Ambrose Evans-Pritchard, International Business Editor of the Telegraph, paint a bleak picture indeed.

Shipping rates hit zero as trade sinksFreight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.

"They have already hit zero," said Charles de Trenck, a broker at Transport Trackers in Hong Kong. "We have seen trade activity fall off a cliff. Asia-Europe is an unmit­igated disaster."

Shipping journal Lloyd's List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal "bunker" costs. Container fees from North Asia have dropped $200, taking them below operating cost.

Industry sources said they have never seen rates fall so low. "This is a whole new ball game," said one trader. more...

Economists and bankers are never known to confuse or mix business with religion... When they start to use religious rhetoric to tell us how bad it is, then you might want to really start to worry.

The Treasury's £200bn plan to soak up toxic debt will be followed within days by a US variant from the Obama team. Germany cannot be far behind.

As one bail-out succeeds another at ever more inflated price tags, rescue fatigue is becoming palpable. People are bewildered, fearing that good money is being thrown after bad.

The doubts are understandable but there are tentative signs of a thaw in the global credit system. Libor lending rates in the US, Britain and Europe have fallen sharply. US mortgage rates have dropped from 6.5pc to 4.88pc since October. Companies can issue bonds again.

"It is easy to conclude that none of the Government's policies are working," said Professor Peter Spencer from York University. "We must not lose sight of the fact that they have prevented the collapse of the monetary system."

This is not does mean that recovery is imminent. Nothing can prevent a long purge as years of credit leverage give way to debt deflation.

It means only that the downward spiral – the "adverse feedback loop" feared by central banks – has been arrested.

...Taken together, the rescues may make the difference between global recession and a deeper slump that causes mass unemployment and social turmoil, perhaps destroying the open global order we take for granted. We can only guess.

There is no guarantee that the measures will succeed. The vast scale of government borrowing may exhaust the stock of global capital. Markets are already beginning to question the credit-worthiness of sovereign states. The Fed may find it harder than it thinks to disengage from colossal intervention in the bond markets.

In the end, the only way out of all this global debt may prove to be a Biblical debt Jubilee.